One Missing Ingredient in Twitter's Earnings

Twitter is missing one key ingredient when it comes to proving that it can go head-to-head with its far larger Silicon Valley rival, Facebook.

NEW YORK (TheStreet) - Twitter (TWTR), not Facebook (FB), won the World Cup when it came to engaging the audience of the world's most watched sporting event. That victory helped Twitter to its best quarter since going public in November, but the company is missing a key ingredient to prove it can go head-to-head with its larger Silicon Valley rival: specifics.

Facebook is willing to detail how advertisers are getting a return on the billions they spend each quarter on the social network. Twitter, a much younger company that is earlier on in its monetization efforts, hasn't yet pulled back the curtain on how advertisers are benefiting from the hundreds of millions of dollars they spend a quarter on promoted Tweets, Twitter Cards and the like.

Facebook COO Sheryl Sandberg said on a conference call last week that Visa (V), Nike (NKE), Ford (F) and McDonalds (MCD) all marketed heavily on the social network during the World Cup. She highlighted McDonald's "FryFutbol' campaign, which used fries as players to re-create the top World Cup moments and reached 125 million people.

Sandberg also spoke of Facebook's new marketing efforts, which revolve around targeting for advertisers, auto-play videos, and customized audiences. Facebook's Custom Audiences' features are now used by 91 of the Ad Age 100, she said.

Otherwise, Twitter and Facebook's second quarter earnings conference calls are nearly identical -- both companies are focusing on 'custom' or 'tailored audiences, they are trying to crack the code on targeting and they are both starting premium video ads and internal methods of ad buying.

Now that Twitter has posted a decisive quarter that may prove to investors it will go shoulder-to-shoulder with Facebook - "we will position ourselves to reach the largest audience in the world and every person on the planet," CEO Dick Costolo said on Tuesday -- it is time to expect further detail on the merit of its advertising platform in coming investor presentations. That's an achievable task for Costolo, CFO Anthony Noto and other top executives such as revenue head Adam Bain.

Comparing Twitter's World Cup Quarter to Facebook

As TheStreetnoted at the outset of the World Cup, Twitter was in a prime position to use the sporting event to prove its platform to users and advertisers. The company also appeared very well prepared for the World Cup, another point TheStreetreported in mid-June.

In particular, Twitter used the World Cup to try and create tailored experiences for the hundreds of millions of people it expected would take to the micro-blogging site as the games kicked off. Each match during the World Cup had its own filter, where specific reactions, videos and ads streamed to users. That ability to filter reactions and customize timelines appears to have driven a big jump in engagement, possibly proving that as Twitter experiments with its platform, there are ways to make the site more personal to users and advertisers.

Costolo opened Tuesday's call speaking about the success of Twitter's tailoring. His comments were unequivocal:

[D]uring the World Cup, we delivered the kind of events experience that I wanted to see from us for some time. We served up tailored experiences for each individual match, and for the overall World Cup. And these experiences felt alive, they felt wonderfully complementary for the matches themselves. That has given me confidence that we can create great user experiences by organizing content around topics and live events.

Second quarter earnings reflected Twitter's ability to drive real-time engagement during the World Cup instead of unfiltered and unengaged noise, something many had accused the company of. Ad revenue rose 129% year-over-year due to higher engagement among users and, consequently, higher returns on investment for marketers. Overall, ad revenue per timeline view rose 100% year-over-year and 10% sequentially to $1.60 per 1,000 timeline views.

To prove just how engaged Twitter's users were, costs per ad engagement rose 18% sequentially, Twitter's first increase in reported CPE. Former CFO Mike Gupta, who is now Head of Strategic Investments, attributed that rise to strong advertiser demand around the World Cup and a shift towards more targeted and higher priced ads.

Monetization and engagement were a highlight of Twitter's earnings. So was reach. On Facebook, 350 million people made 3 billion total interactions throughout the World Cup. Twitter reported 2 billion Tweet impressions off the platform during Germany's semi-final walloping of host-nation Brazil alone, and an additional 4.4 billion impressions on Twitter's owned properties such as Vine during the match.

Whether it is live sports events, live entertainment, news, celebrity breakups, Twitter may be the place where advertisers turn, not Facebook. CEO Costolo indicated that the company may try to replicate its World Cup results with other events.

"I really liked again the kinds of experiences we created around topics and live events during the World Cup. We will run a number of experiments to that broader audience, those unique visitors I talked about, and I wouldn't want to be specific about the sequence with which we will roll those out or when you would see those," Costolo said.

Incoming CFO Noto also said that at the end of fiscal 2015 Twitter will review how it discloses its non-GAAP metrics to investors. "[W]e will do a deep dive on all the key metrics, in the entire way we present the company to the public investor, and make the appropriate changes if we find any," he said.

Perfect!

Twitter appears to understand what it needs to communicate to investors and how it can tweak the network to increase reach and engagement, two questions that loomed over the company. The World Cup proved a great start.